Ongoing curve extension
With more borrowing to do, it is no surprise that semi-government issuers are keen to take advantage of opportunities to issue long-dated debt. It is not an overwhelming requirement of their programmes, however.
BATSMAN Curve extension is important as it provides TCorp [New South Wales Treasury Corporation] with the greatest flexibility when executing our funding programme. We are able to spread our issuance across more tenors, manage our refinancing by extending weighted average life and be more tactical through the rates cycle.
In the secondary market, a quarter of our turnover is in tenors beyond 10 years. In recent times, we have observed successful transactions from our peers in the 13-15 year space and beyond, suggesting strong demand for duration.
TCorp’s clients are fixed-rate outright borrowers, and we are always mindful of the level of outright rates when executing the funding programme. As a result of TCorp having a smaller borrowing task, we have not been active in tenors beyond our longest benchmark bond, of 13 years, at this point in the rates cycle.
TRINH TCV [Treasury Corporation of Victoria]’s approach is to avoid adding stress to stressed markets, to recognise good liquidity points and to respond quickly to changing market conditions. Therefore, we believe it is imperative for the larger semis to have a 20-year liquid curve. Markets will determine how we achieve this of course but we have established the 2044 point with A$440 million (US$275.4 million) of issuance to date.
Obviously, liquidity at the 20-year point is not the same as it is at 10 years. Nevertheless, given programme and balance sheet size, we need to have the ability to term out debt, and manage our refinancing risk and maturity profile.
To increase the new and longer lines, we employ and are active in three issuance formats: tenders, syndication and reverse enquiries.
TCV’s approach is to avoid adding stress to stressed markets, to recognise good liquidity points and to respond quickly to changing market conditions. Therefore, we believe it is imperative for the larger semis to have a 20-year liquid curve.
GULICH It’s important to demonstrate that we are working across maturities and managing refinancing risk effectively. Given the scale of our programmes and anticipated new funding needs, we want to avoid a scenario where a significant refinancing burden coincides with a large new borrowing requirement.
Extending tenor helps mitigate this risk, making longer-dated issuance a key part of our strategy. Educating our treasuries on the rationale behind this approach is crucial, helping them understand why we choose to pay a premium for longer tenor and the benefits that come with it.
The same applies to offshore issuance. While there is a cost associated with going longer in duration, there are also strategic advantages that need to be clearly communicated and understood.
HUGHES We have a 30-year bond and we are not currently planning to extend beyond this tenor. However, a larger funding programme may mean extending the curve is something we need to consider. While we have the capability to extend, demand must be there to justify it. Ultimately, we’re doing our best to navigate these conditions. But volatility is a factor we must all manage.
HILL From an investor perspective, we find that liquidity in semis is relatively robust out to around 12 years. However, liquidity around the 15-20 year part of the curve is still somewhat patchy and tends to depend on the individual bond and the issuer.
